In an interview with ET Now, Christy Tan, Director-Asian FX Strategist, BofA-ML, gives her views on the rupee. Excerpts:

ET Now: The Indian rupee on Thursday and Friday appreciated by about 2% plus. Do you think the rupee has a bottom in place now and it is unlikely to go below 64?

Christy Tan: Well, the risk is still two way and we do think that a lot hinges on the kind of policies that the RBI has implemented and whether or not there will be more. Comments from officials suggest that there will be more along the way. There is definitely still a risk that the rupee would weaken going forward. We definitely want to see some of the data coming forth and at this point, I do not think sentiment has turned. Some of the consolidations that we saw in the past two days were probably signs of trading fatigue and also the dollar not strengthening. But if we do see another bout of dollar strength, the rupee will probably weaken again.

ET Now: What is the range that you are working with in the next one month or so?

Christy Tan: The markets are expecting something like 65 and above. While we do not belong to the camp that expect the rupee to go towards the 70 level, we do see some risk and definitely increasing risk that our forecast for the end of the third quarter for 63.50 will likely be too optimistic. A move back above 64 and towards 65 is reasonable for the next few months.

ET Now: Do you think the Indian rupee is likely to move independently of other emerging market currencies or other Asian market currencies or the script of how rupee will move in the short term will be a function of US Fed, US bond yields and other EM currencies?

Christy Tan: They are both related. So definitely the outlook for the rupee and also other Asian regional currencies has weakened. Basically, we see more pressure for Asian currencies, including the rupee, to depreciate because of external factors like the Fed and US treasury yields. But in the rupee's case, there is some pessimism that is likely to be more evident going forward because of the inflationary risk. We see that in Delhi the price of vegetables has more than tripled and also the inflationary risk that is coming from the weaker currency has yet to be factored in. So there is also the combination of the external and domestic factors at play here.

ET Now: When you say that 64 to about 64.5 could be the correct level for the rupee, what is the thinking behind this number? How are you arriving at that number?

Christy Tan: If we look at the recent high and whether or not there are increasing risks that it could actually breach the recent high, the answer is yes to a certain extent. If you see, there has been some liquidity tightening and import curbs, but yes, now the price of commodities is becoming more costly and if we go into the later part of this year and towards November when there are Diwali holidays, you probably will see stronger demand for some of these commodities like gold and oil. So that could be a contentious point for the rupee actually breaking the recent record.